Dennis Alter and the Tragedy of Advanta

THE COMPANY BEGAN a generation ago, under the somewhat plainer name Teachers Service Organization, in the spare bedroom of a house in North Philadelphia.

In 1951, a public-school teacher named Jack Alter noticed that his colleagues struggled to get loans. He understood teachers and their problems in a personal way — by then, he had spent two decades in English and math classrooms — and realized they struggled not because they were bad borrowers, but largely because they couldn’t leave work during banking hours. So with $30 seed money, he began making small loans by mail, allowing customers to respond outside typical hours. And he made a special effort to add personal touches, like sending out newsletters with articles he thought might interest teachers. His son, Dennis, stood and watched him work alone at his desk in the bedroom, toiling to make a living.

Teachers Service Organization — later called TSO Financial — grew at a slow, steady pace. Meanwhile, Dennis grew up, attended Temple University, and took a job teaching English at Benjamin Franklin High School. When his father retired after 20 years of work, TSO employed 30 people and was worth about $300,000. Dennis took control and led the company into what was — by any measure — a breathtaking period of growth.

He started with a bold move, when in 1982 TSO bought Colonial National Bank in Delaware for more than $2 million. Then TSO used new technologies — telephone transfers, wire services, automated tellers — to take the bank from countertop to remote, from local to nationwide. Those new methods seemed in line with the philosophy pioneered by Alter’s father — the old man, stuffing envelopes with news clips his customers could read at their leisure — except they were more muscular, more aggressive. “The corner branch of a local bank may seem far more distant and less responsive than our customer service personnel,” Dennis Alter told a trade paper at the time.

He was brilliant. A visionary. The new style of banking — “branchless banking,” people called it — caught on, in a big way. By 1985, TSO’s gross revenue reached more than $67 million. That’s a long way from the spare bedroom in North Philly. The company started selling public shares, and changed its name to Advanta. And, most importantly, it started peddling the fantastic plastic: credit cards.

Just as Jack Alter had marketed his services to people like himself — busy teachers — so his son now did the same, with credit cards. He marketed to go-getters: college-educated customers aged 20 to 44, with hefty incomes, good credit, and a tendency to charge their expenses. Advanta found those people through analytics and technology, using computers to crunch vast fields of statistics. That’s how, by 1992, a whopping 80 percent of Advanta’s offerings were gold cards.

The consumer credit-card business paid so well that Advanta shrugged off its original purpose — installment loans — and focused on plastic. By 1994, the company was issuing a million and a half cards per year and was making money hand over fist: Advanta now managed $8.5 billion in assets.

Not all of Advanta’s innovations worked so well. The company’s stock took a hit in the mid-’90s when an unexpectedly high number of its customers declared bankruptcy. The company reacted with financial sleight-of-hand, waiting 90 days to charge off the accounts instead of 30. The change masked the deterioration of its finances, but by 1997, the mask had slipped: Advanta posted a $20 million quarterly loss, and shareholders filed suit. Chaos ensued. The company sold off its credit-card division and remade itself — as a sub-prime mortgage lender.

That market, as the world now so painfully knows, was a moneymaker at the time. Advanta’s fortunes climbed for a few years, until a change in industry regulation led to a crippling $192 million quarterly loss in 2000. So the company sold off its mortgage business and once again faced the prospect of a complete do-over.

That’s when Dennis Alter seized on an idea that proved both brilliant and disastrous: small-business credit cards.